Issue 5
Enforcing (but not Defending) ‘Unconstitutional’ Laws
When, if ever, should the executive decline to defend in court a federal law it has concluded to be unconstitutional, and yet still enforce that same statute? The question is presented by the Obama Administration’s decision to enforce, but not defend in court, Section 3 of the Defense of Marriage Act (“DOMA”). But the DOMA § 3 decision is not the first time the executive has bifurcated enforcement of a statute from its defense in court. The practice dates back at least to World War II. Yet the conditions of possibility and the consequences of “enforcement-litigation gaps” have never been specified, investigated, or evaluated. This Article fills that gap. Enforcement-litigation gaps are a form of departmentalism: constitutional practice by a political branch. Reflecting the strong priors many have toward executive branch departmentalism, enforcement-litigation gaps provoke both broad endorsement and strong repudiation. Contrary to conventional wisdom, this Article argues that a categorical response of either kind is unjustified. Enforcement-litigation gaps are neither always justified nor logically inconsistent with larger constitutional values. By clarifying the variables at stake when the executive separates enforcement from litigation, I develop a general framework for distinguishing desirable from undesirable uses of the practice. This framework suggests enforcement-litigation gaps are most justified when the executive defends an Article II value. They rest on weaker footing when the underlying constitutional question relates to the constitutional rights of third parties. The Obama Administration, on this account, acted unwisely in distinguishing the continued enforcement of DOMA § 3 from its defense in federal court—but not for the reasons generally believed.
Market Segmentation: The Rise of Nevada as a Liability-Free Jurisdiction
This paper exposes and analyzes the rise of Nevada as an almost liability-free jurisdiction. Contrary to conventional wisdom – that Nevada imitates Delaware law but does not make any profits from competing with it – Nevada has embarked on a lucrative strategy of market segmentation with a differentiated product – a shockingly lax corporate law.
Market segmentation with lax law has allowed Nevada to overcome significant barriers to entry. By tailoring its product to a particular subset of the market, Nevada gained market power in a segment that is not served by Delaware. Nevada’s clear, no-liability law makes Delaware’s competitive advantages less significant and leaves it unable to effectively respond.
Firms may incorporate in Nevada for a variety of reasons that include extracting private benefits, saving on incorporation taxes, and minimizing litigation costs. The data, however, suggest that at least some firms choose Nevada for the first, less benign reason.
Normatively, policy makers should find it worrisome that high agency costs firms, which would benefit the most from regulation, disproportionally choose Nevada’s lax law. Another reason for concern is that Nevada, by creating a competitive pressure towards the bottom, may be dragging Delaware down.